Gross Freight Earnings Derived by Tropical Shipping & Construction Co., Ltd., A Non-Resident American Shipping Company Operating in International Traffic, from such Operation Subject to tax of 1-½% pursuant to the RP-US Tax Treaty

March 5, 1997 BIR RULING NO. 022-97 25 (a) (2) 000-00 022-97 Citadel Lines Citadel Building 637 Bonifacio Drive Port Area, Manila Attention: Ms . Malaya T . Dela Paz Comptroller Gentlemen : This refers to your request for information regarding the Philippine tax liabilities of Tropical Shipping & Construction Co., Ltd., your US-based principal. You have represented that you are registered with the Securities and Exchange Commission (SEC) and the BIR as Citadel Shipping Lines but uses the trade name Citadel Lines; that you have been acting as a general shipping agent for various shipowners around the world since 1960; that as such, you solicit cargoes to be loaded or discharged from their designated vessels in return for freight payments; that as agent, you pay in behalf of your principals the 3% common carrier's tax and the 2-% income tax on the gross outward freight earnings or billings on a quarterly basis; that on June 1, 1995, you were appointed by Tropical Shipping & Construction Co., Ltd., as its agent in the Philippines to perform certain sales and cargo agent services; and that the said US shipping company will operate services for Manila to the Caribbean via Florida. In reply, please be informed that pursuant to Section 25(a)(2) of the Tax Code, as amended, international carriers doing business in the Philippines shall pay a tax of two and one-half percent (2-%) on their Gross Philippine Billings. However, Article 9 of the RP-US Tax Treaty provides, viz: "ARTICLE 9 "(1) Notwithstanding any other provision of this Convention, profits derived by a resident of one of the Contracting States from sources within the other Contracting State from the operation of ships in international traffic may be taxed by both Contracting States; however, the tax imposed by the other Contracting State may be as much as, but shall not exceed, the lesser of "(a) One and one-half percent of the gross revenues derived from sources in that State; "xxx xxx xxx" Such being the case, since Tropical Shipping & Construction Co., Ltd. is a non-resident American shipping company operating in international traffic, the gross freight earnings derived by it from such operation shall be subject to a tax of 1-% pursuant to said Article 9 of the RP-US Tax Treaty. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. aisadc Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue